Domestic liquidity (M3) grew by 34.8 percent year-on-year at end-March 2014 to reach P7.0 trillion. This increase was slower than the revised 36.1-percent expansion recorded in February. On a month-on-month basis, seasonally-adjusted M3 grew by 1.3 percent, following the revised 0.4-percent rise in the previous month.
Money supply continued to expand due to the sustained demand for credit in the domestic economy. Domestic claims rose by 12.4 percent in March as bank lending accelerated further, with the bulk going to real estate, renting, and business services, utilities, wholesale and retail trade, manufacturing, as well as financial services. Meanwhile, public sector credit grew at a slower pace of 3.5 percent as the deposits of the National Government (NG) increased, reflecting in part the proceeds from the auction of government securities as well as revenue collections from various agencies.
Net foreign assets (NFA) in peso terms also increased by 9.6 percent partly on account of the higher valuation of foreign assets due to the depreciation of the peso relative to year-ago levels. In addition, the NFA of banks increased as banks’ foreign assets expanded at a faster pace relative to the growth in their foreign liabilities. Banks’ foreign assets expanded due mainly to the growth in foreign loans and receivables as well as in their investments in marketable debt securities. Meanwhile, banks’ foreign liabilities rose on account of higher deposits of foreign residents and placements made by foreign banks with their local branches and other banks. Similarly, the BSP’s NFA position rose on the back of continued robust foreign exchange inflows coming mostly from overseas Filipinos’ remittances and business process outsourcing receipts.
As in previous months, the strong M3 growth reading in March continues to reflect the broad decline in the SDA placements of trust entities compared to their levels a year ago, in line with the BSP’s operational adjustments in the SDA facility.
The growth in domestic liquidity remains consistent with the current pace of expansion in the real sector. Going forward, the BSP will continue to assess liquidity conditions closely as it guards against potential risks to price and financial stability that could arise from strong liquidity growth.